End of EU sugar quota 'significant change' for supply chain

The EU’s scrapping of long-held quotas on sugar could create a new era of lower prices, with implications reaching the whole the sugar supply chain.

As of 1 October, sugar firms in the EU can now produce and export as much as they want.

Callum MacPherson, head of commodities at Investec in London, said ending the quota could see a knock-on effect for the whole supply chain, ending in a fall in price for consumers.

“Ultimately, the end of the quota could result in cost reduction for food, pharmaceutical and other manufacturers who use sugar and this may result in a cost reduction for the end consumer,” he said.

“If EU prices begin moving in line with international prices it could lead to greater volatility than sugar users in the EU have experienced in the past. However, thus far, prices for sugar supply contracts in the EU going into the post quota period are still being agreed at a significant premium to international prices.”

EU sugar prices, which have traded at a premium to the world price, are set to move more in line with global rates, according to Rabobank.

Average EU prices are at about $590 a tonne, according to the European Commission. That compares with about $361 a tonne for white-sugar futures traded in London.

The Committee of European Sugar Users (CIUS), which represents the European sugar-using food and beverage industries, welcomed the end to the “market distorting sugar production quotas”.

Robert Guichard, CIUS president, said it was a major step towards sustainable supplies of sugar for the food and drink industry.

“This is a significant change and new opportunity for the whole sugar supply chain,” he said.

“Europe benefits from the positive trade balance and growing exports of high European value-add sugar-containing food and drink products. In order to continue to succeed in increasingly competitive local, European and global markets, we depend on the security and competitiveness of supply of sugar.”

The UK’s sole refiner, British Sugar, said it expects the change to allow them to increase production by 50% annually to 1.4m tonnes next year from 900,000 tonnes in 2017.

Companies such as France’s Tereos and Germany’s Suedzucker both previously announced they were ramping up operations to get ready for the change.

Paul Kenward, managing director of British Sugar, hailed the deregulation of the EU sugar market as “great news for Britain”.

“In the past you could bang on my door and say you wanted more sugar, but I had to say no even if I could make it. Now that is changing,” he said.

“This is a red letter day for the home-grown sugar industry—it gives us an opportunity to grow and prosper with no limit on the amount of sugar we can sell in the UK, Europe and around the world.”

The EU is the world's leading producer of beet sugar – roughly 50% globally. However, beet sugar represents only 20% of the world's sugar production, with the other 80% produced from sugar cane, according to the EU.

Across the EU, sugar production next year is now forecast at 20.1m tonnes, about 20% more than this year’s crop, according to Investec.

The EU’s sugar quota was introduced in 1968 along with the trading bloc’s Common Agricultural Policy (CAP) to support farmers' incomes with a minimum price.

Over the years, the quota has seen billions of Euros paid to farmers in subsidies but 10 years ago, the EU agreed to move towards a more competitive sugar industry and in 2013 agreed to abolish the quota.

The quotas also curbed the amount of sugar EU producers could sell in the domestic markets, which boosted imports.

However, Macpherson said now that the quotas had been removed, there would be less need to import supplies from places like Africa and the Caribbean.